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June Construction Jumps 6 Percent

New construction starts in June advanced 6 percent to a seasonally adjusted annual rate of $549.7 billion, the highest level so far in 2014, according to McGraw Hill Construction, a division of McGraw Hill Financial. Nonresidential building strengthened after pulling back in May, with the lift coming from the start of several large manufacturing plant projects. Modest gains in June were also reported for housing and nonbuilding construction (public works and electric utilities). New highway construction starts in June improved 6 percent.

“The first half of 2014 revealed a mixed performance by project type,” stated Robert A. Murray, chief economist for McGraw Hill Construction. “Single-family housing stands out as the biggest surprise on the negative side, as its upward trend present for much of 2012 and 2013 has stalled for now. Public works and electric utilities are seeing generally decreased activity, as expected. On the positive side, multifamily housing is still proceeding at a healthy clip, and commercial building continues to move hesitantly upward, with office construction this year providing most of the support. Manufacturing-related construction surged in the first half of 2014, boosted by the start of several massive chemical plants and refineries, while the institutional building sector is still trying to make the transition from lengthy decline to modest growth. The year-to-date increase for total construction starts, at a slight 1 percent, reflects the lackluster activity present in January and February. More recent statistics suggest that the expansion for total construction is getting back on track in a moderate, if selective, manner.”

Nonresidential building in June climbed 12 percent to $214.9 billion (annual rate), after slipping 4 percent in May. The increase came as the result of an exceptional volume of manufacturing projects in June, led by the start of a $3.0 billion polyethylene plant in Texas.

Other large manufacturing projects that were reported as June starts included a $396 million nitrogen plant expansion in Louisiana and a $375 million refinery expansion in Montana. If the volatile manufacturing category is excluded, nonresidential building in June would be down 11 percent after a 22 percent gain in May. The commercial building sector in particular retreated in the latest month, sliding 27 percent after soaring 33 percent in May. Office construction dropped 49 percent in June following a robust May that included $2.3 billion for the office portion of the new Apple Inc. headquarters in Cupertino, Calif.

June still featured the start of several large office projects, such as a $146 million office tower in Chicago and a $143 million office tower in Philadelphia. Hotel construction also pulled back in June, dropping 25 percent after a strong May, although the latest month did include $92 million for two convention center hotels in Boston.

Stores and warehouses, which were sluggish during much of the first half of 2014, advanced 5 percent and 15 percent, respectively, in June. The largest store project entered as a June construction start was a $138 million shopping center in Redlands, Calif.

The institutional side of the nonresidential market improved 3 percent in June. The healthcare facilities category, which generally weakened in early 2014, increased 36 percent in June as the result of groundbreaking for a $900 million hospital campus in San Francisco. The amusement category also posted a sharp June gain, soaring 62 percent with the support of a $375 million arena in Las Vegas.

In contrast, the educational building category in June receded 10 percent, settling back from previous improvement. Even so, the latest month did include the start of several noteworthy public school construction projects, including a $104 million renovation of a high school in Washington, D.C.; a $94 million high school in Severna Park, Md.; and a $68 million middle school in Lynn, Mass. The other institutional categories witnessed decreased activity in June – churches, down 10 percent; transportation terminals, down 38 percent; and public buildings, down 56 percent.

Residential building, at $214.3 billion (annual rate), grew 3 percent in June. Multifamily housing rebounded 22 percent, as it continues to show an up-and-down pattern around what is still a rising trend.

The latest month included four noteworthy multifamily projects – two apartment buildings in Jersey City, N.J., valued at $269 million and $200 million, respectively; $160 million for the condominium portion of a $230 million condo-hotel in Surfside, Fla.; and $120 million for the condominium portion of a $195 million condo-hotel addition in New York.

Single-family housing in June slipped 2 percent from May, continuing the essentially flat pattern that emerged towards the end of 2013 and has carried over into 2014. Murray noted, “The cost of financing stayed low in June, as the 30-year fixed mortgage rate finished the month at 4.1 percent, but strict bank lending standards continue to make it hard for first-time homebuyers to enter the market, at a time when investor demand for single family homes is waning.”

Nonbuilding construction in June increased 2 percent to $120.5 billion (annual rate). New electric utility starts were up 26 percent for the month, strengthening from a weak May, although still in line with the downward trend for this project type that’s been underway over the past year.

Large electric utility projects that reached the construction start stage in June included a $700 million natural gas-fired generation plant in Iowa, a $225 million wind farm in Oklahoma, and a $120 million transmission line project in Virginia.

The public works sector overall weakened 1 percent in June, due to declines for two categories. Bridge construction fell 12 percent relative to May, which had been lifted by substantial bridge projects in New York and Kentucky, while miscellaneous public works plunged 28 percent.

In contrast, new highway construction starts in June improved 6 percent, while the environmental public works categories showed these gains – river/harbor development, up 14 percent; sewers, up 15 percent; and water supply systems, up 23 percent. The water supply category was helped in particular by the June start of a $108 million water treatment plant in San Antonio.